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EQT lures Dominion, Duke shippers with 'desirable' Mountain Valley pipe capacity

EQT Corp. is negotiating the sale of some or all of its 1.29 Bcf/d of capacity on the almost complete 2-Bcf/d Mountain Valley Pipeline LLC natural gas transportation project to Dominion Energy Inc. and Duke Energy Corp. affiliates that were left in the cold with the cancellation of the nearby Atlantic Coast pipeline project.

"With [Atlantic Coast pipeline] being canceled, that was about 1.5 Bcf a day of capacity that was going down into the Southeastern market, which [was] competing with [Mountain Valley] capacity that was going to deliver gas there," EQT President, CEO and director Toby Rice told analysts on a second-quarter earnings call July 27.

"So, not having that project online makes [Mountain Valley] more desirable," Rice said. "I think the customers that signed up for that [Atlantic Coast pipeline] project are still looking for that gas, and [Mountain Valley] is going to be a good outlet for that. So those are the parties that we're having conversations with. ... It could be up to all of our capacity."

Rice and CFO David Khani said EQT, the largest U.S. natural gas producer, hopes to sell the Mountain Valley capacity at cost, or 77 cents/MMBtu, EQT's special rate as an anchor shipper. While neither executive put a figure on what this move would save the company, a Stifel Nicolaus analysis July 8 pegged the benefit to EQT at $50 million per year.

Mountain Valley is an over 300-mile pipeline project running from West Virginia to markets and pipeline connections in Virginia and North Carolina. It is a joint effort of EQM Midstream Partners LP, NextEra Energy Capital Holding, Con Edison Transmission Inc., WGL Midstream Inc. and RGC Midstream LLC. EQM Midstream will be the operator when the pipeline enters service.

Facing continued low gas prices, EQT might again shut in a significant amount of production before a move up in prices expected this winter, although in July, the company restored the 1.4 Bcf/d of production it had shut in for most of the second quarter, Rice said. "The economics could be worthwhile, and that's something we'll look at and see if we decide we want to shut in more production ... late in the summer or in the fall," Rice said.

Low prices are also pushing Appalachia's producers toward consolidating, Rice said. While noting that EQT has no merger and acquisition deals in the works, Rice said EQT is looking for acreage packages in the basin. Because EQT does not want to do any deals that increase its debt, a corporate takeover of a neighbor is unlikely, the CEO said.

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Low gas prices were the main driver of EQT's reported adjusted net loss of $45 million, or 18 cents per share, for the second quarter, compared to an adjusted net income of $22 million, or 9 cents per share, in the same period a year ago. S&P Capital IQ's consensus estimate was an adjusted loss of 14 cents per share.

EQT's second-quarter production of 3.8 Bcfe/d was 6% less than the second quarter of 2019, while its realized price for gas was 9% less at $2.36/Mcfe, the company reported. Its cash costs, including transportation, dropped 7% to $1.42/Mcfe when compared to the same period a year ago.

EQT is dropping one rig in Appalachia. The company plans to keep drilling with two to three rigs to maintain its 4-Bcfe/d production level. The company reported a reduction in its costs per foot to drill a well of 30% to $680/foot in the second quarter when compared to 2019, below its $730/foot guidance. The reduction has eliminated the need for the third or fourth rig, Rice said. However, the company kept its 2020 spending guidance of $1.1 billion intact.

Dominion and Duke have not commented on any gas transport deals their electric and gas utilities might enter into with Mountain Valley Pipeline. Dominion affiliates that were customers of the canceled Atlantic Coast pipeline included Virginia Power Services Energy Corp. Inc., which contracted for 300,000 Dth/d, and Public Service Co. of North Carolina Inc., with 100,000 Dth/d. Duke affiliates that were signed up for capacity on Atlantic Coast included Duke Energy Progress LLC with 452,750 Dth/d, Duke Energy Carolinas LLC with 272,250 Dth/d and Piedmont Natural Gas Co. Inc. with 160,000 Dth/d.

"Natural gas will remain an important part of our company's clean energy strategy to facilitate retirement of coal and to achieve our 2050 net-zero carbon goal," Duke spokesperson Neil Nissan said after Atlantic Coast's cancellation, without confirming or denying talks with EQT.